The recent equity rally is showing signs of running out of steam ahead of the MPC interest rate announcement at midday as yet more iffy economic data saps confidence. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Is it all a question of timing? Forget the doom and gloom from high street baker Greggs (GRG) yesterday, this morning clothing chain Next (NXT) has said the recent heat waves have prompted a profit upgrade for the year ahead. It’s not all good news: store sales fared badly, resulting in lower full-price retail sales. But online revenues soared by nearly a fifth compared to the same time last year, meaning that overall, full price sales still rose by a solid 6 per cent. This has been a crucial part of the Next recovery plan, to protect margins and thus, profits. We remain buyers.
Sticking with apparel, this morning wasn’t such a jubilant affair for Superdry (SDRY). Despite strong online and wholesale performances during the fourth quarter, store sales fell by 6 per cent, dragging the entire year’s growth rate across the group’s stores down to just 3.4 per cent. Margins have also contracted by 200 basis points (although some of this had been pre-empted), meaning that annual profits are now expected to land somewhere between £96.5m and £97.5m - lower than the previous £98.5m mid-point estimate. Our recommendation is under review.
BT’s (BT.A) shareholders have not taken full year results well. Shares were down as much as 8 per cent in early trading after the telecoms giant reported it missed expectations in the year to March 2018, cut guidance in the current financial year and expects to increase capital expenditure in this year and next despite the removal of 13,000 jobs. The only good news is that the dividend remains in place, but with costs mounting in Openreach, the TV business and the Pension Scheme (which now has an even wider deficit following the recent triennial valuation), the question remains as to how long BT can hang on to its dividend. Sell
Arrow Global (ARW) reported an 11 per cent increase in its core collections during the first three months of the year to £86m. That fed through to a 10 per cent rise in underlying pre-tax profits. The distressed debt buyer also announced a new strategic partnership with M7, the a pan-European specialist commercial property investor. Buy.
It has been a while since ITV (ITV) was last able to report a rise in advertising revenues. In the first quarter of 2017, strong demand for online slots sent total advertising revenues up 3 per cent. In the second half of the year, this is expected to be boosted further by the Football World Cup. More important for the long term growth is the studios business, which reported an 11 per cent leap in revenues. Buy
Online travel agent On The Beach (OTB) reported a 19 per cent increase in revenue to £45.3m during the year to March, with adjusted pre-tax profits up 15 per cent to £14m. This includes the £1.1m impact for lost bookings and seat pricing due to the collapse of Monarch. But management were cautious on the outlook for European airlines, as Monarch’s collapse led to an increase in seat prices and reduction in bookings. This sent shares down more than 10 per cent in early trading. But flight capacity is recovering with hope that this should alleviate any constraints soon. Buy.
KEY STORIES:
Royal Bank of Scotland (RBS) has settled with the Department of Justice over its issuance of mortgage-backed securities between 2005 and 2007. The banking group will take a $4.9bn (£3.6bn) cash penalty, much less than analysts had expected. The group had existing provisions of $3.46bn and will take a $1.44bn incremental charge in the second quarter. That will result in a 50 basis point reduction in its common equity tier one ratio to 15.1 per cent.
Supermarket Morrisons (MRW) is ready to predict good things for 2018, despite only just completing its first quarter. The grocer reported a 3.6 per cent improvement in like-for-like sales (excluding fuel) during the period, while total sales rose 3.8 per cent - the result of flat inflation and good volume growth. True enough, the number of transactions rose by 0.7 per cent, although the number of items per basket dipped by 1.1 per cent. Chief executive David Potts said net debt should continue to fall throughout the year, and expectations remain unchanged for now.
Barratt Developments (BDEV) reported a flat year on year sales rate - at 0.80 net private reservations per active outlet per average week - for the first five months of the year. However, total forward sales were up 2.5 per cent, while it launched 33 new developments in the period (including JVs), operating from 388 - up from 384 - active outlets per average week. Management also expects its net cash position to be above previous guidance at £550m.
Rathbone Brothers (RAT) suffered a 3.3 per cent decline in funds under management to £37.8bn during the first three months of the year. That was due to higher outflows from its core investment management business, which resulted in net inflows of £199m. Overall net inflows were £341m, which were offset by £1.7bn in negative market movements.
As previously flagged, TP Icap (TCAP) reported a 3 per cent rise in revenue during the first four months of the year. Improved conditions in rates products and an uptick in equity volatility was partially offset by ongoing weaknesses in power and poor credit markets. The global broking business enjoyed a 5 per cent rise in sales to £442m, but the energy and commodities division suffered a 4 per cent decline in revenues to £111m. The shares were down 5 per cent in early trading.
Abcam (ABC) has decided not to make a bid for Horizon Discovery (HZD) less than a week after first announcing that the target had rejected its first proposal. Horizon’s share price has - understandably - fallen.
Revenue at Stobart Group (STOB) doubled during the year to February to £242m, while underlying cash profits nearly quadrupled to £135m. This was mainly due to the rapidly growing aviation business. Stobart owns and operates London Southend, the UK’s fastest growing airport with passenger numbers up by a third last year to over 1m. The energy division is on track to achieve its growth targets, and rail contracts were won over the year. Shares fell more than 4 per cent in early trading.
Shares in Randgold Resources (RRS) are off 8 per cent this morning, after posting an update for a “softer first quarter in which it contended with multiple challenges”. Gold production for the first three months of 2018 was 16 per cent off, and total cash costs per ounce were 15 per cent up on Q4 2017. And while the company re-iterated full-year guidance, grade issues at the Loulo-Gounkoto complex, and work stoppages at Tongon have led shareholders to draw their own conclusions.
Investors fired a shot across the bows of Rentokil Initial (RTO) at its AGM yesterday, with 25 per cent voting against an increased bonus package for chief executive Andy Ransom
Global Ports Holding (GPH) reported that revenue during the first quarter was up 13.1 per cent to $20.6m (£15.2m) with cash profits up 14 per cent to $13m. This was in part to an increase in passenger numbers in the cruise business and container throughput, which helped offset flat sales in cargo. Management is still cautious on the outlook for Turkey on the back of geopolitical tensions there, but tourism numbers are beginning to rise year-on-year. Shares were up 2 per cent in early trading.
OTHER COMPANY NEWS:
Analysts at Liberum have downgraded Lonmin (LMI) to a sell, despite the South African platinum miner’s ongoing takeover by Sibanye-Stillwater. The broker has flagged the “increasing risk that the merger…falls apart and the subsequent difficulties [Lonmin] would face in securing a refinancing of its debts”. Shares in the group are currently trading at 50p, well below the level when Sibanye first made its bid.
